Move fast if you plan to transfer your pension overseas

A consultation may recommend a ban on moving defined benefit schemes abroad

The Queen's Speech left no doubt about the direction of the UK government in increasing the flexibility of pensions in the UK.

But those in defined benefit (DB) schemes who may wish to transfer their pension overseas need to act now.

George Osborne, the Chancellor, announced the biggest changes in pension legislation in nearly 100 years in this year's Budget.

Pensions flexibility was a key feature, designed to offer those who have saved for retirement the option of taking their pension as they wish, without being forced to buy an annuity. However, these rule changes would only apply to defined contribution (DC) schemes.

A consultation is underway as to whether those in DB schemes – which include NHS workers, police officers, firemen, the military and civil servants – should be banned from transferring their pension at all. The consultation ends today (June 11), and a decision will be announced before July 22.

A ban on transfers would hit expats who are based overseas, having already worked in those fields in the UK. It would also affect those planning on retiring abroad and moving their pension to a qualifying recognised overseas pension scheme (QROPS).

Enquiries about transferring a UK DB pension to a QROPS have risen by nearly a third since the Budget, said Reece Fallaize, group technical manager of deVere Group, with India, Ghana and Zimbabwe the three countries where most enquiries are being received.

He said: "The changes sound positive if you are in a DC scheme. But if you are in a DB scheme, they could be very negative. Clients are too afraid to wait and see if these transfers are banned.

"We have spoken to a lot of schemes and they have said they have not been told to ban transfers, but if you want to do this, you cannot wait and see."

Any ban could come into place with an exemption for "exceptional circumstances", which could mean for those already based overseas, but there is no guarantee.

A ban could also be made retrospectively, but any application prior to the announcement is likely to be honoured, said Mr Fallaize.

He added: "If [the Government] did say transfers are banned, and the exceptional circumstances did not include that you were already overseas, then under EU law [from 2004 which was why QROPS were initially implemented] you should still be allowed to make the change.

"Unless there is a substantial change, then QROPS are still a very attractive proposition for those outside the UK."

In the Queen's Speech last week, Her Majesty said: "Depending on the outcome of the HM Treasury Freedom and Choice in pensions consultation, the Bill would allow DWP to either bring forward legislation to implement a ban on all transfers out of private sector DB schemes or not."

This did not reveal the Government's thinking on the topic.

Nevertheless, the announcement that the Government is also considering adding a new form of pension – a collective DC scheme (CDC) – means things could get even more complicated. This system is used in the Netherlands and is designed to reduce the risk of those holding a DC scheme by pooling the resources of a number of individuals.

Steve Bee, CEO and founder of Jargonfree Benefits, said: "On the one hand the Government clearly understands that DC pot owners will value more control over their pension savings. On the other they recognise that collective funds may offer some level of certainty of pension outcomes, albeit without any guarantees, and that also might appeal to some people.

"But what are the chances of all of the employees of a particular employer favouring just one option, more control or more certainty? Should employers offer two schemes, one based on individual pots and the other on a collective pot?

"Our pension system is already mind-bogglingly complex. Adding another different and alien strain of pensions to the two we already have will surely add to the problems ordinary people already have when they try to get their heads around pensions."